UNNECESSARY MORTGAGE INSURANCE DRAWS FIRESTORM

Some 250,000 homeowners _ and perhaps many more _ are paying for something they don't need. I'm speaking of private mortgage insurance, the subject of recent and pending legislation in Washington and several states.

For cash-poor home buyers, mortgage insurance is a godsend. It lets you buy a house with a downpayment smaller than 20 percent.

Normally, bankers don't lend to people who can't put a lot of money down, because they're more likely to default. Insurance, however, greases the deal. The mortgage insurer guarantees to make the payments if you cannot.

The annual premium you pay depends on the mortgage you get and how much money you put down. At the Mortgage Guaranty Insurance Co. in Milwaukee, the price range is 0.23 percent to 0.92 percent of the loan for the first 10 years. After that, it's 0.2 percent.

But you may not need mortgage insurance that long. Once your home equity reaches 20 percent, you become the kind of buyer who doesn't have to buy mortgage insurance.

So why are tens of thousands of borrowers still making insurance payments? Some may not know they can cancel. Others have tried but the company servicing their mortgage wouldn't cooperate.

One servicer stalled the wrong person _ Rep. Jim Hansen, R-Utah. He got a four-year runaround when he tried to exercise his right to cancel the mortgage insurance on his condominium loan.

With respect to new loans, it requires the servicer to cancel your coverage automatically, if your payments are current and your loan has dropped to 75 percent of what the house was worth when you first bought.

Sen. Alfonse D'Amato, R-N.Y., has an even better proposal: automatic cancellation when your loan gets down to 80 percent of what your home was originally worth, with certain conditions. He would also cover all mortgages, including those currently held.

In theory, no law should be necessary. Fannie Mae and Freddie Mac, the major corporations that purchase mortgages today, already require mortgage servicers to cancel your insurance if your loan is down to 80 percent of your home's current value and other conditions are met.

It's only because so many servicers refuse that Congress has stepped in.

California seems likely to get the nation's first automatic-cancellation law. A bill similar to Hansen's passed the Legislature last week and went to the governor's desk.

New York prohibits lenders from charging for mortgage insurance once the size of the loan drops below 75 percent of the home's original value. But there's no procedure for dropping the coverage.

Since Jan. 1, Minnesota has provided a right to cancel if the loan drops below 75 percent of the home's current market value and other conditions are met. Connecticut, Hawaii and Maryland require disclosure of some sort. Texas passed a disclosure law last month.

Around the country, some class-action lawsuits are going forward, charging the mortgage insurers with price gouging.